Deposits Slowing Across Markets, Says Kotak Mahindra Bank
Amid the fear of recession around the globe, the Kotak Mahindra Bank on Friday in a report said that deposits slowing across markets.
In its report the bank stated, a deep dive into our annual analysis of deposits based on Reserve Bank of India's (RBI’s) recent publication showed that growth has slowed across geographies and deposit providers.
Deposit growth through current account savings accounts (CASA) has been higher than trend levels and ratios are likely to reverse as the push for gathering deposits accelerates.
"Private banks continue to gain share with gains much more in current as compared to term or savings deposits. The duration of term deposits continues to decline," the report stated.
The RBI data on deposits highlighted that deposit growth has slowed to 10 per cent year on year (YoY) with the perceptible slowdown in all markets (metropolitan, semi-urban and rural India) with household savings being relatively weak and private banks continuing to gain market share but their dominance is much more in urban markets as compared to rural and semi-urban markets.
The recent conversation with investors is explicitly focused on the wedge that is currently visible between deposit and loan growth. However, we see other concerns as well, the report added.
"CASA deposits have been growing at a much faster pace than term deposits partly driven by slower demand for deposits as loan growth has been slow or probably due to excess savings during the Covid period," as per the report.
As loan growth recovers, the sector is likely to see a greater push towards mobilising deposits, which implies that the competition would shift from CASA deposits to term.
"We also observe that the tendency to hold in CASA has been higher in recent years across geographies, banks and by different deposit holders as well," it added.
This behavior by depositors could change. It could be a step function behavior to shift deposits aggressively at higher interest rates.
"Finally, given the nature of deposits where non-individuals have a higher share in term deposits, the duration of these deposits has declined but it raises concern as it is likely to be sensitive as interest rate reverses," the report revealed.
